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4 Standing Up for Steel

When President George W. Bush took office in January 2001, a messy tradeissue landed on his desk that had bedeviled the administration of Presi-dent Bill Clinton for the previous three years. Since 1998, the domesticsteel industry had experienced two distinct downturns, resulting in de-pressed prices, falling profits, a stream of bankruptcies, and job lossesnumbering in the tens of thousands. According to the United Steelwork-ers of America (USWA), a coalition of powerful members of Congress,and most US steelmakers, unfairly priced foreign imports had caused thealarming declines. To restore the industry’s profitability, steel representa-tives repeatedly called for the Clinton administration to seek a trade rul-ing—known as a section 201 action—that, if successful, would allow thepresident to impose a steel quota or other form of far-reaching relief.

But a range of critics claimed that such a measure would be misplacedand that the relief it would bring was unjustified. Foreign steelmakers in-sisted that US firms were struggling because of increasing domestic com-petition and a lack of consolidation at home; many steel analysts said thatfalling steel profits were the inevitable result of excess capacity worldwide,including in the United States; and a number of US steel consumers andeconomists argued that cheap foreign steel was actually good for the coun-try, and that quotas would inevitably spur trade retaliation. If the govern-ment imposed a steel quota, many observers agreed, it would unnecessar-ily harm foreign countries dependent on steel exports, while benefitingone narrow product sector at the expense of the broader US economy.

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Standing Up for Steel is an edited and revised version of the case with the same name originally written bySusan Rosegrant, a case writer at the Case Program at the John F. Kennedy School of Government. Forcopies or permission to reproduce the unabridged case please refer to www.ksgcase.harvard.edu or senda written request to Case Program, John F. Kennedy School of Government, Harvard University, 79 JohnF. Kennedy Street, Cambridge, MA 02138.

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The Clinton administration ultimately left office without bringing asection 201 case. But as the health of the domestic steel industry contin-ued to deteriorate in 2001, the Bush administration faced increasingly ur-gent pleas to open a comprehensive 201 trade investigation. WhateverBush decided would likely have far-reaching consequences for the do-mestic steel industry, the US economy, and the nation’s relationships withits foreign trading partners.

A History of Trade Remedies

The steel industry’s quest for trade relief was not new. For much of the20th century, the US steel industry had served as the nation’s industrialbackbone; it had provided jobs for generations of workers and in theprocess it became a potent symbol of the country’s industrial might. Butsince the 1960s, when foreign steel first entered the US market in signifi-cant quantities, domestic companies and steelworkers had complained ofunfairly priced imports and an uneven playing field.

While market conditions had changed over the years, and the num-ber of steel-producing countries had grown, many of the fundamentalissues remained the same. According to US industry, domestic companiescould not compete effectively against most imported steel because of per-vasive market-distorting practices overseas. These practices includedclosed markets that permitted few imports, such as Japan’s protected do-mestic market; nonmarket economies in which steel enterprises werestate-owned and supported, such as in the former Soviet Union; and re-liance on government subsidies, such as the assumption of pension costsby European governments to aid restructuring during the 1980s and 1990s.In addition, US steelmakers said, production costs in the United Stateswere generally higher owing to more stringent regulation of labor and theenvironment.

Because foreign steelmakers enjoyed such home-market advantages,US companies claimed, they often could afford to sell steel in the UnitedStates at prices well below what US steelmakers needed to charge to re-main profitable. To be sure, domestic steelmakers did not compete di-rectly with imports for all their business. Large steel consumers, such asthe major auto manufacturers, met most of their steel needs through con-tracts with US companies. By contrast, most foreign steel was imported bymetal-trading companies or steel service centers that sold the steel on theso-called commodity-grade spot market. But even the large contract saleswere affected when cheap imports forced down overall prices, industryrepresentatives said.

In order to protect profitability and market share, the US steel industryand its workers had repeatedly appealed to the government for protection

194 CASE STUDIES IN US TRADE NEGOTIATION, VOL. 2

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from foreign imports, claiming that without relief the domestic industrywould be unable to compete. The government had been unusually re-sponsive, in large part because of the clout of the steelworkers’ union, theUnited Steelworkers of America, and the strength of the CongressionalSteel Caucus, a powerful bipartisan group of lawmakers who representeddistricts and states containing steel manufacturers.

Four administrations in a row imposed import restraints, beginningwith President Richard Nixon, who in 1969 established quota-like volun-tary restraint agreements that lasted five years and affected steel fromJapan and Europe. In the late 1970s, Jimmy Carter’s administration de-vised a “trigger price mechanism” that allowed a certain amount of steelimports into the country if sold at or above a set price. After that expired,President Ronald Reagan negotiated a new round of voluntary restraintagreements (later renewed by President George H. W. Bush) that appor-tioned shares of a limited import pool among foreign steel-producingcountries. Many critics pointed to this series of import restraints as evi-dence of undue government protectionism. “Beginning with import quo-tas in 1969, protection has been the rule rather than the exception for thesteel industry,” according to Daniel Griswold, associate director of theCato Institute’s Center for Trade Policy Studies.1

By the time Bill Clinton assumed the presidency in 1993, the voluntaryrestraint agreements of the Reagan and Bush era had expired. Domesticsteelmakers continued to make aggressive use of the US trade laws attheir disposal, however.

Antidumping and Countervailing Duty Laws

The antidumping and countervailing duty laws dealt specifically with un-fair trade. Most frequently brought were antidumping cases, often referredto simply as dumping cases. If a union or group of domestic steel compa-nies believed that a steel product was being imported at an unfair price, or“dumped,” it could request that the US Commerce Department initiate aninvestigation.2 If Commerce concluded that unfair pricing had occurred,by finding that the import price was lower than the home-market price orthan the cost of production, it then determined the margin of dumping(that is, the difference between the chosen basis of comparison and the US

STANDING UP FOR STEEL 195

1. Daniel Griswold, “Counting the Cost of Steel Protection,” House Committee on Ways andMeans, Subcommittee on Trade, Hearing on Steel Trade Issues, 106th Congress, 1st session,February 25, 1999, www.freetrade.org.

2. The Treasury Department had originally overseen dumping cases but Commerce as-sumed responsibility in 1979, a move that most observers agree has contributed to theprocess becoming more responsive to industry.

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import price). Finally, the petitioners went before the International TradeCommission (ITC), an independent, quasi-judicial federal agency,3 to try toprove that the dumping had caused injury or threat of injury to the indus-try. If the ITC reached a positive finding, the importer had to pay dutiesequal to the dumping margin. Issuance of a final ruling could take 12 to 18months, but importers had to post a bond to cover estimated duties assoon as a preliminary positive finding had been reached, a process typi-cally completed within about six months.

Countervailing duty cases were brought when domestic companies be-lieved a government subsidy in a foreign country was giving a foreign in-dustry an unfair advantage. Unfair government subsidies could includethe granting of interest-free loans and the assumption of pension andhealth care costs. If the ITC found injury, Commerce would have the USCustoms Service impose a “countervailing” or offsetting duty on the im-ports equal to the estimated subsidy.

Section 201 of the Trade Act of 1974

Unlike antidumping and countervailing duty investigations, a Section 201case did not rely on proof of unfair trade practices. Rather, if the ITC de-termined that the volume of a particular import constituted a substantialcause or threat of serious injury to a domestic industry, the presidentcould impose temporary import relief without violating the rules of theWorld Trade Organization (WTO). Once initiated, usually by the industryin question, the case went straight to the ITC, which ruled on the case and,if it found for the industry, made a recommendation to the president, allwithin six months. The president then had 60 days to come up with a rem-edy, which could be no action at all, a tariff, a quota, a tariff-rate quota, orsome form of trade adjustment assistance.

Section 201 actions had the potential to provide a more comprehensiveremedy than did dumping investigations. In the case of steel, for example,a 201 investigation could target all steel imports from all countries, whilea dumping or countervailing duty investigation dealt only with one prod-uct and one country at a time (e.g., hot-rolled steel from Japan). But in partbecause the injury standard was higher for a 201 than for a dumping orcountervailing duty case, and thus harder to prove, and in part becausethe outcome was entirely at the president’s discretion, 201 cases were farless common.

Critics of the dumping laws insisted that they were too plaintiff-friendly.Indeed, from 1980 to 1997, 80 percent of all dumping cases brought in the


3. ITC regulations require that no more than three of the six commissioners be of the samepolitical party. In practice, this has usually resulted in a commission split between Demo-crats and Republicans.

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United States—including steel actions—were successful. According toWilliam Barringer, a partner at Willkie Farr & Gallagher who had long rep-resented Japanese and Brazilian steelmakers, foreign countries were soconvinced of the slim chances of prevailing that they often did not evenbother to respond to dumping cases.4 But industry representatives in theUnited States maintained that the dumping laws were a completely legiti-mate and necessary tool for combating surges of unfairly priced importedsteel. The number of successful cases, they contended, merely demon-strated the prevalence of dumping and subsidization.

In either case, many economists noted that all steelmakers periodicallyengaged in dumping because in a cyclical and capital-intensive industryit was more profitable to sell below cost during a downturn than not tosell at all, as long as revenues covered variable costs. While it was legal tosell below cost in a home market, something US firms did regularly, to do so overseas was dumping (US steelmakers exported very little steel).“This is completely economically rational behavior in a period of excesscapacity,” observes one economist, “but it runs afoul of the dumping laws.”Because selling below cost was so common in the industry, and becausethe domestic industry was aggressive in seeking protection, steel compa-nies historically had used the dumping law more than any other industry:They were responsible for about a third of all cases brought between 1980and 1995.

History of Restructuring

Although the US steel industry continued to seek relief from what itdeemed unfair imports, foreign steelmakers and some other industry ob-servers argued that most of the steel industry’s problems were the resultof internal decisions and conditions at home. US steel companies—loathto make the huge capital investments required—had taken longer thanmany of their foreign competitors to upgrade their outdated open-hearthblast furnace technology to more cost-efficient basic oxygen furnaces, crit-ics said. Not until the 1980s did serious industry reinvestment begin, andthe last open-hearth furnace in the United States did not close until 1991.

The older integrated steel mills—so called because they relied on a ver-tically integrated process to turn raw inputs such as iron ore into finishedcarbon flat-rolled steel products—also faced growing competition domes-tically from mini-mills, many of which began operating in the 1970s. Thesefaster and more flexible companies typically had far lower costs than theintegrated mills did: They produced finished steel from abundant scrap


4. Unless otherwise noted, all quotes from William Barringer are from a September 2001 in-terview with the author.

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metal melted in highly efficient electric-arc furnaces; their workforceswere often non-union; and because they had been in business only a fewyears, they did not have to pay benefits to large numbers of retired work-ers. Although the steel produced by the early mini-mills was mostly low-grade, the product improved with the technology. By 1998, the mini-millswere competing directly against the integrated mills in certain productareas, and their share of US production had increased to almost 40 percent.

Some critics also claimed that US companies had not done enough toconsolidate, particularly compared to European and Latin American firms.According to Barringer, efforts by the USWA to keep all plants in opera-tion—regardless of their performance—had constrained restructuring andhad resuscitated entire companies that should have been allowed to fail. By 1997, Barringer says, the industry could be broken into three distinctsegments: the large integrated steelmakers, such as AK Steel, BethlehemSteel, and U.S. Steel, most or all of whose operations were cost-competitive;globally competitive mini-mills, such as Nucor and Steel Dynamics; andthe second-tier integrated mills, such as Weirton, Wheeling-Pittsburgh, andGeneva Steel, which, he claims, were “on the verge of bankruptcy, havebeen on the verge of bankruptcy, and will continue to be on the verge ofbankruptcy.”

Consolidation efforts were hampered as well by the so-called legacycosts borne by the older integrated firms. In the 1970s, even as industry andunion representatives decried the market incursions of steel from abroadand appealed to government to protect the domestic industry, wages forsteelworkers grew more rapidly than wages in any other industrial sec-tor—increasing not only current worker benefits but also the benefits thatwould be paid out as workers retired or were laid off during subsequentplant closures. Such generous wage policies, negotiated during a period ofindustry decline, had contributed by the 1990s to soaring legacy costs inthe form of pension, health, and severance benefits that drove down com-pany profits, raised the cost of restructuring, and made steel companiesunattractive as potential acquisitions.

But US industry and union representatives painted a very different pic-ture. A two-decade period of comprehensive restructuring, they insisted,had by 1997 created a world-class industry characterized by quality, effi-ciency, and productivity. Dozens of inefficient mills closed, and employ-ment fell from more than 547,000 workers in 1980 to about 236,000 in1997—a more than 50 percent drop in the labor force. In fact, the very realburden of legacy costs, US steelmakers argued, was painful proof of the in-dustry’s aggressive consolidation. Over the same period, domestic steel-makers—with the federal government’s encouragement—invested morethan $50 billion in updated facilities and equipment, including more than$7 billion in environmental controls. Productivity increased at twice theaverage rate of all US manufacturing, helped by the more productive mini-


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mills; indeed, at less than four man-hours per ton of steel, it was among thehighest in the world.

However, even some analysts who conceded that US steelmakers hadmade great strides over the previous two decades questioned whethergovernment policies supporting widespread reinvestment had been wise.The reason steelmakers were struggling both in the United States andabroad, they argued, was global overcapacity, caused by quickly risingworldwide productivity and relatively sluggish growth in demand. De-spite the domestic plant closings and layoffs, total shipments of steel prod-ucts in the United States had risen from about 84 million tons in 1980 toabout 105 million tons in 1997. Thus, as more developing nations becamesteel producers and countries such as the United States increased produc-tion, excess global capacity, which in the last few decades had often topped20 percent of production, would only get worse. “Why would we try toforce an industry that is in decline and supposed to be reducing its capac-ity to actually take money and invest it in the steel industry?” asks one for-mer government official.

In addition, some industry observers questioned whether the US gov-ernment should protect the domestic steel industry at all. Cheap foreignimports, after all, lowered the cost of steel for downstream users, who bythe 1990s far exceeded steel producers in employment and capitalization.Moreover, given the growing strength of the mini-mills and the numberof new steel-producing entrants worldwide, the risk of a single foreigncountry or company driving all US firms out of business, taking control ofthe steel market, and then raising prices was negligible. “If the UnitedStates adjusted out of steel and we ended up producing only 20 percentof our steel needs, would we be in deep trouble, and unable to have ourmanufacturing sector produce the kind of machinery we need?” asks oneeconomist. “The answer is no.”

But most Americans still believed in the importance of a vital US steelindustry. While steel-consuming businesses wanted access to imports,they also wanted a reliable and accessible domestic supply. In addition,despite deep layoffs and numerous plant closings, steel was still a highlyvisible industry, and regional pockets around the country depended onsteel mills to keep their economies afloat. Finally, even some economistswho considered themselves supporters of free trade argued that simply al-lowing market forces to work was not fair in a global industry so skewedby foreign subsidies. “It has been distorted by so much government inter-vention on so many different levels for so long,” says Greg Mastel, tradecounsel and chief economist for the Senate Finance Committee, “that it’s amarketplace where it is hard to say ‘Just let the market operate.’”5


5. Unless otherwise noted, all quotes from Greg Mastel are from a September 2001 interviewwith the author.

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The 1998 Steel Crisis

Despite ongoing restructuring, the 1990s were a period of recovery formuch of the US steel industry. The nation’s strong economy created aready market for steel, as domestic demand increased by about 7 percenta year. Steel imports accounted for 20 percent of the US market in 1997,but much of that was needed, since domestic demand exceeded what UScompanies could supply by more than 15 percent. Moreover, about aquarter of the imports consisted of semifinished steel brought in by thedomestic steel industry itself for further finishing. US steel shipmentswere at a record level, and domestic steel mill capacity utilization—a keymeasure of industry health—was above 90 percent.

By the fall of 1997, however, George Becker, president of the UnitedSteelworkers of America, was becoming uneasy about how the domesticindustry would be affected by the growing financial crisis in Asia. Demandfor steel in Asia had collapsed, making the US market more than usuallyattractive, and regional currency devaluations in such steel-making coun-tries as South Korea and Japan were resulting in even cheaper foreign steel.Becker met with members of the Clinton administration to voice his con-cerns, but the data did not yet support his contention that rising importsand falling prices might spiral out of control. After all, the steel industry’s1997 financial results were the best in more than 15 years.

By the summer of 1998, though, the Asian crisis, coupled with an eco-nomic collapse in Russia, began to have a serious impact on the globalsteel market. As there accumulated a backlog of steel, much of which for-merly would have gone to Asia, prices fell worldwide and a huge volumeof low-priced steel—in particular, hot-rolled steel from Japan, Russia,Korea, and Brazil—poured into the US market.6 Imports in a few cate-gories rose to nearly 40 percent of the US market, about double what theyhad been the year before. Despite a booming domestic economy, US steel-makers faced the choice of following prices down or giving up marketshare. Even Nucor, the mini-mill whose low-cost production had helpedto make it the nation’s second-largest steelmaker, wrote to Commerce Sec-retary William Daley in August to warn that unfairly priced imports weretaking a dangerous bite out of the US industry’s profitability. “WhenNucor came and said it was hurting,” one former official says, “that gotthe attention of people in the administration.”

To combat the sudden surge of imports, the steelworkers union beganto work several fronts simultaneously. In September, it launched “StandUp for Steel,” a $4 million advertising and public relations campaign de-signed to identify steel imports as the cause of industry disruption and to


6. US imports of Japanese hot-rolled steel for the year would eventually show a 381 percentincrease over 1997.

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exert pressure on political representatives. “In this great economy wheneverybody else was doing well, we had to penetrate and push throughwith the message that there was a major American industry and a lot ofemployees that weren’t sharing in the good fortune,” says William Kline-felter, legislative and political director for the USWA. “We had to say thatwe were under attack. We had to get that message home.”7

That same month, the union began bombarding Congress and the Clin-ton administration with requests for legislative and executive action.8 Ac-cording to Klinefelter, the union was convinced that only a comprehen-sive solution could provide the quick and far-reaching action that the steelindustry needed to avoid plant closures and job losses. While a legislativequota limiting imports was its clear first choice, the union also consideredthe likely effectiveness of a section 201 trade case. “I think we all realizedthat the dumping cases were not going to be enough, that we had to shutoff more products from every place,” Klinefelter explains. “So that’s whenthe idea of the 201 case came up among us.” In particular, the unionwanted the Clinton administration to self-initiate a 201 case. If the admin-istration brought the case, union officials reasoned, the president would bemore likely to grant significant relief should it succeed.9

But the US steel industry disagreed with the union position on quotasand 201.10 Since the end of Reagan- and Bush-imposed voluntary restraintagreements in the early 1990s, dumping cases had become the main rem-edy for industry. Section 201 cases, while more comprehensive than dump-ing cases, carried a number of risks, steel representatives say. They weredifficult to bring; the injury standard was high; and relief was at the dis-cretion of the president, who was often constrained by foreign policy con-siderations. “In the last 20 years, no major industry had gotten relief under201,” says Alan Wolff, a partner at Dewey Ballantine who represented agroup of major US integrated steel firms.11

Industry did not speak out against the union’s efforts, since it did notwant to sour relations with the union, but it also did not directly support


7. Unless otherwise noted, all quotes from William Klinefelter are from a September 2001 in-terview with the author.

8. Although the crisis had become apparent the previous month, Klinefelter says, the uniondelayed the letter-writing campaign because “nothing happens in Washington in August.”

9. Industries most commonly requested a 201 investigation, but unions, the president, theUSTR, the House Committee on Ways and Means, and the Senate Finance Committee wereall authorized to initiate one.

10. According to William Barringer, the second-tier firms were the only ones pushing for a201 action along with the unions because they were desperate for any form of comprehen-sive relief: “At the end of the day, what they were really looking for was a political solu-tion—a bailout.”

11. Unless otherwise noted, all quotes from Alan Wolff are from a September 2001 interviewwith the author.

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them. At the same time, it pursued its preferred course: On September 30a dozen steel companies filed dumping cases on hot-rolled steel againstJapan, Russia, and Brazil, as well as a countervailing duty case againstBrazil. The union, which was also hedging its bets, joined in the filings.

Becker and Klinefelter met repeatedly with leading members of theCongressional Steel Caucus through the fall. Although the steel crisis hitlate in the year, making it difficult for Congress to react, the House ap-proved a nonbinding resolution calling for a one-year ban on unfair steelimports from 10 countries, including Japan, Russia, and Brazil. In addi-tion, Senators John Rockefeller (D-WV) and Arlen Specter (R-PA) intro-duced a bill that would make it easier to bring a section 201 case. “What Iwas trying to tell the administration with these resolutions,” says Kline-felter, “was that if you don’t do something, don’t think that Congresswon’t act, because the Congress will act.”

The administration had its own reasons to take action. “There is a lot ofmerit to the argument that foreigners have subsidized their steel indus-tries,” says one former Clinton official. “While there is a huge amount oflatent political support for free trade, the Republicans and the Democratsalso compete in being tough against unfair trade.”

The Early Clinton Administration Response

During the fall, as the steel crisis worsened, the Clinton administrationtried to reduce the onslaught of imports without resorting to market-closing measures. US Trade Representative (USTR) Charlene Barshefskyin October urged the European Union to accept more Russian steel andpressured Japan, which was responsible for almost half the import surge,to begin cutting its steel exports.12

In addition, Commerce streamlined its dumping investigations and in-stituted a new “critical circumstances” policy that allowed it to impose du-ties retroactively on whatever preliminary margins were eventually deter-mined, rather than waiting until the margins had been assessed for dutiesto take effect. On November 23, after the ITC found injury in the dumpingcases filed against Japan, Russia, and Brazil, Commerce announcedthat it would apply retroactive duties to affected imports that had enteredthe United States beginning November 12; this policy helped to stop im-porters from rushing products targeted by a dumping action into theUnited States before duties had been assessed and imposed. The threat ofdumping duties helped drive December steel imports down by one-thirdfrom the previous month.

But such actions did not constitute a policy. Since August there hadbeen frequent interagency meetings of top officials involved in the steel


12. Although the EU talks were largely fruitless, imports of Japanese steel fell by almost 50percent in December in response to the dumping case and administration negotiations.

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issue to discuss what to do. In particular, administration representativesdebated the wisdom of bringing a 201 case, the only comprehensive im-port remedy the administration could impose that was WTO-compatible.Principals’ meetings—chaired by National Economic Council head GeneSperling, who coordinated steel trade policy—consisted of cabinet-levelofficials such as Treasury Secretary Robert Rubin, Commerce SecretaryWilliam Daley; USTR Charlene Barshefsky, Chairman of the Council ofEconomic Advisers (CEA) Janet Yellen, and White House Chief of StaffErskine Bowles, usually accompanied by their deputies. But much of thereal work occurred in the deputies’ meetings, chaired by Deputy Assistantto the President for International Economics Lael Brainard. These sessionsnormally included Deputy Secretary Lawrence Summers; Under Secre-tary of Commerce for International Trade David Aaron, backed up byAssistant Secretary for Import Administration Robert LaRussa; USTRGeneral Counsel Susan Esserman; State Department Assistant SecretaryAlan Larson; Deputy National Security Adviser James Steinberg; and CEAmember Robert Lawrence.

According to inside observers, the policy positions of agencies and indi-viduals were largely predictable. Officials at the Commerce Departmentand the USTR, who were meeting regularly with industry lawyers and of-ficials, wanted to pursue all legal mechanisms that might help the troubledsteel industry; they were considering both the union’s request for a section201 action and regulatory changes that might make it easier for the indus-try to win trade relief. While the USTR thought industry should bring the201 case, some Commerce officials felt that the administration should con-sider self-initiating an investigation. “It was an emergency measure—that’swhat it was designed for,” says David Aaron, then commerce undersecre-tary. “We were in an emergency, and I felt that was the right way to go.”13

Officials at the White House, meanwhile, including President Clinton;Chief of Staff Bowles, later replaced by John Podesta; and Deputy Assis-tant to the President Karen Tramantano, were sympathetic to the steel-workers’ plight. But the White House was also very concerned about themessage that self-initiating a section 201 case would send. “If we did this,it would be interpreted that we had gone protectionist,” Aaron explains.“The Democrats felt vulnerable [to that charge] as a national party. Theykept saying, ‘We have the right to do this, it’s accepted in the WTO, andmaybe it’s even the best solution, but it would send a terrible signal.’ ”Adds Klinefelter: “We had tremendous access to the administration. Butthe philosophical mind-set was for free trade. They did not want to sendany signal that they were deviating from that.”

Not surprisingly, most of the economists—members of the NationalEconomic Council, CEA, and the Office of Management and Budget—and


13. Unless otherwise noted, all quotes from David Aaron are from a September 2001 inter-view with the author.

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agencies concerned with foreign policy, such as the State Department andthe National Security Council, wanted to support free trade to the greatestextent possible. But the most powerful voice was that of Treasury SecretaryRobert Rubin. Rubin’s handling of national and international economic is-sues over the past four years had given him a “stature within the admin-istration that was beyond anything the other members of the cabinet couldpossibly reach,” according to one well-placed observer. In the midst of thedeepening Asian financial crisis—considered by many officials to be theworld’s worst financial crisis in 50 years—Rubin’s paramount concern wasto avoid any action that could further destabilize financial markets andlead to inevitable repercussions within the US economy. Part of that effortwas keeping the United States open to steel. “Any signals we sent that wewould be closing our markets could really destabilize the markets, espe-cially in Asia,” says one former White House official. “The US was the im-porter of first and last resort during that time period, so we recognized theproblem in steel could have much larger ramifications.”

Rubin’s conviction that the United States needed to keep accepting steelimports set him solidly against a section 201 action, whether self-initiatedby government or filed by industry. “You have to give him credit for theway in which he handled the whole crisis, and the way the people on theHill and the people overseas had confidence in his ability to handle it,”the union’s Klinefelter says. “But we were coming to him and saying, ‘Mr.Secretary, what you’re doing may be good for the overall economy, but it’sgoing to have a flashback on us.’”

The widely differing administration perspectives made reaching con-sensus on a cohesive steel policy difficult. One official remembers appear-ing along with USWA head George Becker before the Senate Steel Caucuson November 30 and worrying because the administration did not have acomprehensive strategy to announce, beyond promising a steel actionplan by early January, as requested by a congressional resolution. “At thetime, we were saying vigorous trade law enforcement, immediate forayswith countries around the world, and bilateral initiatives to have themkeep down their exports,” the official recalls. “I was quite concerned at thetime that it wasn’t sufficient, but there were a lot of debates within the ad-ministration about what to do.”

During this time, the union and the second-tier steel companies contin-ued to press for comprehensive relief. According to the American Ironand Steel Institute, the average price per metric ton for all steel importshad dropped more than 20 percent between January and October to $400,the industry had lost 10,000 jobs over the previous year, and steel mill ca-pacity utilization had fallen to 74 percent. Alarmed by the continuingslide, USTR Counsel Susan Esserman called industry representatives intoher office. “I said, ‘Let’s go over a 201 case. If you’re interested in a 201case, we’re interested in working with you.’”14 But the response, she says,


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was decidedly unenthusiastic. Lawyers for the integrated steelmakers, onthe other hand, say they felt that it was up to the Clinton administrationto take the lead. “We met with Sue Esserman and our feeling was it’s awholly discretionary statute, and the president can do what the presidentwants to do,” recounts the lawyer Alan Wolff. “If the president was notcommitted to the notion that relief was warranted, it would be somethingof a fool’s errand to go ahead.”

Perhaps more to the point, the steelmakers’ lawyers did not believe thata comprehensive 201 case was winnable at the time, both because the im-port surge was most pronounced in just a few categories, such as hot-rolledsteel and wire rod, and because the history of import penetration and in-jury was not long enough. Although overcapacity had forced prices andprofits down, and US steel imports for the year had increased 37 percentover 1997, domestic companies had shipped 102 million tons of steel in 1998despite lower overall employment—a production level that was topped inthe previous 20 years only by the peak year of 1997—and 11 of the top 13steel companies were still profitable. “If you have diminished profits in acyclical, capital-intensive industry during the peak of the business cycle, isthat injury?” asks Wolff. “The ITC has never found that. So our feeling wasthat the statutory criteria as interpreted by the ITC could not be met.” Headds, however, that had the Clinton administration chosen to self-initiate,it would have improved the case’s chances “significantly.”

Although the Clinton administration continued to debate the merits ofa 201 case through the end of 1998, Rubin’s opposition to market restraintscarried the day. “Clearly he did not want to send any signals to our Asiantrading partners,” the union’s Klinefelter recalls. “Their economies werein danger of serious collapse. If we could absorb some of that pain, he feltour economy was strong enough and we were robust enough that wecould do it.” He adds: “I think they felt that we’d weather it. The worldeconomy would stabilize, the imports would go down, and we’d be backto normal.”

The January Steel Plan and the Negotiated Agreements

On January 7, 1999, the Clinton administration delivered the steel actionplan promised the previous year. Titled Report to Congress on a Compre-hensive Plan for Responding to the Increase in Steel Imports, the program in-cluded a demand that Japan cut steel exports to the United States back toprecrisis levels; a system of earlier import monitoring, since, as one for-mer administration official says, “There was the sense that somehow this


14. Unless otherwise noted, all quotes from Susan Esserman are from a September 2001 in-terview with the author.

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crisis had occurred and we hadn’t known it was happening;” $300 millionin tax relief for steelmakers, spread over five years; financial adjustmentassistance for out-of-work steelworkers and hard-hit steel mill communi-ties; and a continued commitment to strongly enforce all US trade laws.“The Clinton administration’s posture could be characterized as ‘We willaggressively implement the laws, but we are not going to go beyondthem,’” says Robert Lawrence, then one of two members of the Council ofEconomic Advisers chaired by Janet Yellen. “We will neither change thelaws nor violate them.”15

Klinefelter, who says the January steel plan “was not considered a boldnew way to go,” met with John Podesta and Karen Tramantano to reiteratethe union’s strong support for a 201 action. Although he got no defini-tive answer, it was clear to him that the administration would not self-initiate.16 Nor were steelmakers pleased. Instead of better import moni-toring, industry for months had been lobbying for a system similar toCanada’s, which did not restrict imports but required a license or permitto import, allowing faster and more accurate tracking of products enteringthe country.

Industry also objected to the import agreements that the Clinton admin-istration announced one month later. Since September 1998, Russian steel-makers and government officials—alarmed by the sharp industrial andeconomic declines in that country—had been pleading with the adminis-tration not to impose dumping orders on Russian steel, even going so faras to publish a full-page letter to Vice President Al Gore in the WashingtonPost. In February, Commerce announced two tentative deals with Russia:an agreement suspending the dumping case on hot-rolled steel, and a com-prehensive agreement covering all other steel exports. Hot-rolled importswere to be cut back to 750,000 tons a year, with a minimum price rangingfrom $255 to $280 per metric ton. Both agreements, which were to remainin effect for five years, returned steel exports to precrisis levels.

Former assistant secretary for import administration Robert LaRussa,who led the Russian negotiations, says the deals were designed to protectUS steel companies while still giving Russia more access to the US mar-ket—and to much-needed foreign currency—than it would have hadunder the dumping order.17 According to foreign steel attorney WilliamBarringer, the US government had another strong motivation in negotiat-ing: “Russia can export three things: weaponry, oil, or steel. There was a lot


15. Unless otherwise noted, all quotes from Robert Lawrence are from a September 2001 in-terview with the author.

16. According to Klinefelter, “The Clinton administration had a way of never saying no, butnever saying yes.”

17. Unless otherwise noted, all observations by Robert LaRussa are from a September 2001interview with the author.

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of pressure within the administration not to shut the Russians out of thismarket for fear that they would ship other products.”

But the US steel industry saw the agreements as another example of the Clinton administration’s willingness to sacrifice steel to some otheragenda. “Suspension agreements are always done to help the foreigner,”says one US steel lawyer. “They are never done to help the domestic in-dustry.” In a May 24 letter to Commerce Secretary Daley, almost twodozen steel executives expressed their opposition to the agreements. “For-eign policy and other objectives do not have a place in the administrationof the antidumping laws,” they wrote, adding later: “If foreign aid is to be granted to Russia, it should not be at the expense of a single Americanindustry.”

Ironically, LaRussa says, because steel prices did not rebound as muchas expected after 1998, the minimum prices set as part of the suspensionagreement effectively excluded Russian hot-rolled steel from the US mar-ket, contrary to administration intentions. Nevertheless, the US steel in-dustry challenged both the Russian agreements and a similar suspensionagreement negotiated with Brazil, charging that they allowed imports inat dumped prices and questioning Commerce’s commitment to enforcingthe dumping laws. The administration’s actions apparently pleased al-most no one; Russian steelmakers and American steel users also attackedthe agreements, calling them too restrictive to allow needed trade.

The 1999 Steel Legislation

As the administration worked with foreign trading partners—negotiatingagreements with Russia and Brazil, pressuring Japan and Korea to cut ex-ports and correct market-distorting practices, and appealing again to theEuropean Union to buy more Russian steel—the steelworkers union wastackling a separate set of initiatives. In a January 8 letter to President Clin-ton, the union’s president wrote that given the limitations of the Januarysteel plan, “we now have no choice but to work with our supporters inCongress, of which there are many, to pass into law the absolutely vital re-lief which the Administration is apparently unwilling to provide—legallybinding quantitative restraints which reduce steel imports to their pre-crisis levels.”

George Becker could confidently speak of congressional support. Muchof the union’s clout came from its close ties to the more than 120 Houseand Senate members of the Congressional Steel Caucus. More importantthan their numbers was their seniority: Committed caucus members suchas Congressmen Peter Visclosky (D-IN), Jack Quinn (R-NY), and PhilipEnglish (R-PA), and Senators Arlen Specter, John Rockefeller, and RobertByrd (D-WV), were in a position to cast swing votes on key pieces of leg-islation. “We have people in the right places to deliver a message and to


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deliver members when you have a vote,” says Klinefelter. “I talked withRockefeller’s office and Visclosky’s office every day. That’s how a unionwith less than 200,000 members could be as effective as we were.”

Starting in January, both the House and the Senate debated severalpieces of union-backed steel legislation. Key among these was the SteelRecovery Act, introduced by Peter Visclosky and Jack Quinn. While thebill included a number of measures, its main provision was a quota cut-ting all steel imports over a three-year period to the average monthly vol-ume during the three years preceding July 1997. The administration im-mediately spoke out in opposition. To impose a quota unilaterally withoutan injury determination was a violation of the rules of the WTO and, asCommerce’s David Aaron says, “was completely antithetical to the admin-istration’s philosophy of more liberalized trade.” A former White Houseofficial adds: “The president and the vice president felt it was important touse the trade remedies we had negotiated assertively, but that we shouldmake it clear that we were operating within WTO consistency, and that weexpected other countries to do the same.” The House, however, seemed tofeel no such compunction. As one former official puts it: “One of the mar-vels of the American system of government is that we can sign an interna-tional agreement, the Congress can implement that agreement, and theCongress can violate that agreement. Domestic law has precedence overinternational treaties.”

In place of the quota bill, the USTR and the White House worked quietlywith Representative Sander Levin (D-MI) on legislation that would changesection 201—making it easier for petitioners to prove injury—and chargethe ITC with addressing the problem of anticompetitive practices in foreignsteel markets. The purpose of Levin’s bill, says the attorney William Bar-ringer, “was to try to give Congress an alternative to a quota bill, so mem-bers could still say, ‘We’re helping steel.’” The administration was notunited in support of the bill, however. According to one insider, some offi-cials argued that the 201 injury standard should be lower, so that dumpingcases would not be overused relative to 201; others argued that it was ap-propriate for dumping standards to be lower, since the standards dealt withunfair trade; and some insisted that “any rewriting of our laws to look lesspro-trade would be a very bad thing for world confidence and stability.”

While the union supported Levin’s bill, it threw its real weight behindthe quota legislation, working the issue hard. “We had 1,000 or more mem-bers in 150 congressional districts,” Klinefelter explains. “If we have 1,000or more members in any congressional district, we’re going to be a factor.”Industry, which did not want to support legislation in violation of theWTO, remained quiet.18 The administration, for its part, spoke out againstthe quota bill, one official recounts, but did not expect to prevail. Although


18. Weirton Steel, a struggling second-tier integrated mill, was one of the only companies topublicly endorse the bill.

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the pro–free trade Republican leadership might ordinarily have been ex-pected to block quota legislation, congressional sources say, Speaker Den-nis Hastert (R-IL) asked that the act be allowed to come to a vote in orderto put Clinton in the awkward position of opposing a union-backed bill.

On March 17 the House passed the quota bill by a vote of 289 to 141,short of the two-thirds majority needed to override a presidential veto.Though Klinefelter calls the vote a significant victory, others describe it asmore symbolic than substantive. “The union’s hope was that the votes inCongress, especially the House, would push the ITC, the Commerce De-partment, and others to consider their trade actions more favorably,” saysGreg Mastel, the Finance Committee’s economist. William Barringer ob-serves, “It was a free vote for House members, because they felt it proba-bly would be blocked in the Senate, but if it wasn’t blocked in the Senate,it would be vetoed by the president.”

As administration officials were quick to point out, however, the lastthing President Clinton wanted was to have to veto legislation backed bykey Democratic allies and a powerful constituency like the steel union.Democratic Senator John Rockefeller of West Virginia, who had been aclose friend of Clinton’s since the two were governors, had been pushingthe president to self-initiate a 201 case since the previous fall.19 Accordingto Ellen Doneski, Rockefeller’s legislative director, the senator was op-posed to WTO-incompatible quotas and had earlier refused to back suchlegislation. When it became clear that Clinton would not bend on 201,though, Rockefeller introduced a Senate version of the House quota bill.20

This time, the administration launched a serious assault, holding pressconferences, courting the members of the steel caucus, and meeting withindividual senators and lobbyists. “After the vote in the House, the ad-ministration was all over the Hill,” recalls Klinefelter. In making its caseagainst trade barriers, the administration was joined by free trade advo-cates in Congress, domestic steel users concerned about quota-inducedsteel shortages and inflated prices, and even a coalition of farm groups,which sent a letter to the Senate in mid-June warning that a steel quotawould likely spur foreign retaliation against US agricultural exports.

Even during the earlier House bill debate, the administration had beenporing over import figures, looking for evidence that the already-imposeddumping penalties and bilateral negotiations had ended the import surge,thus making a quota unnecessary. “The questions we kept asking were‘Will the industry recover, and when will the industry recover?’” says thenCouncil of Economic Advisers member Robert Lawrence, “hoping that


19. West Virginia–based Weirton and Wheeling-Pittsburgh, the eighth and ninth largest ofthe integrateds, were two of the steelmakers most in danger of failing, and Rockefeller be-lieved that only a comprehensive solution could save them.

20. Like the House, the Senate considered several steel bills, including a measure similar toLevin’s bill, but the quota bill garnered the most attention.

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would take off the political pressure and, indeed, help the industry.” Be-cause of a buildup of inventories, Lawrence says, the domestic industrydid not bounce back as quickly as some had expected. But by May, Com-merce Secretary Daley was able to announce an encouraging drop in im-ports and an increase in domestic prices. By mid-June, although Klinefel-ter insists “there was not much truth to it,” Daley was declaring at everyopportunity that the crisis was over.21

On June 22 the Senate effectively killed the quota bill in a proceduralvote. Improved import levels were only part of the story. Senators gener-ally were more attuned to foreign policy considerations and less likely topass this kind of special interest legislation than were representatives, ob-servers say, in part because they had to report to broader constituencies(even senators from strong steel states also typically represented exportingbusinesses or major steel users). “It is a much more difficult place for us tooperate,” acknowledges Klinefelter, “because we just don’t have enoughpeople in enough states to control the Senate.” Indeed, some of the bill’sstaunchest supporters admit that they never expected it to pass in the Sen-ate. Instead, they say, the attempt was a necessary exercise to show theunion and concerned companies that a quota bill was not doable, and thatit was time to try something else.

Although the quota effort died and none of the measures proposed inthe House or Senate to change section 201 advanced, one piece of legisla-tion went through that summer that pleased the union and at least a seg-ment of the domestic steel industry. Senator Robert Byrd, a senior memberof the Appropriations Committee, attached an amendment to an emer-gency appropriations bill allocating $1 billion to a measure that becameknown as the Emergency Steel Loan Guarantee Act. Under the act, trou-bled steelmakers that met certain requirements could obtain loans fromprivate lenders that Treasury would guarantee for up to 85 percent of theloan amount. Critics charged that Byrd’s amendment, backed as well byhis fellow West Virginia Democrat Senator Rockefeller, was a blatant effortto bail out failing steel mills in West Virginia, particularly Weirton. “Sena-tor Rockefeller has two major steel manufacturers,” says his legislative di-rector, Ellen Doneski, “and what he didn’t want to have occur was for thesteel market to stabilize after one or two bankruptcies in West Virginia.”22

The Clinton administration did not like the amendment, but it also didnot go out of its way to fight it. Ironically, the Byrd amendment may havebeen most unpopular among segments of industry. The better-performingmini-mills and those companies that had undergone successful restructur-


21. Although import levels had not returned to 1997 levels, they were well below the surgethat began in August 1998.

22. Unless otherwise noted, all quotes from Ellen Doneski are from a September 2001 inter-view with the author.

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ing did not want to see uneconomic competitors kept afloat by governmentsubsidies and thereby add to the problem of excess inefficient capacity.

With a recovery in steel apparently under way, calls for a government-launched 201 investigation mostly subsided. A flurry of trade cases workedthrough the system, as industry had filed dumping cases in cold-rolledsteel, steel beams, and two different sizes of pipe, as well as two section 201cases in pipe and wire rod. Such cases continued to generate friction. Someobservers blamed the failure of that fall’s WTO ministerial in Seattle in parton the unwillingness of the United States to allow discussion of dumpinglaws. LaRussa and Aaron of Commerce, however, say that countries op-posed to launching a new trade round called for new dumping negotia-tions, knowing that the United States would refuse and that they couldthen blame the collapse of the ministerial on US intransigence.

A Brief Recovery—A Further Fall

For the steel industry, the year 2000 began with some promise. Imports hadfallen, at least in some key categories, and the US economy was strong. Do-mestic demand for steel in autos and construction was booming, and steelmill capacity utilization had increased markedly from the 1998 slump.Still, steel industry profits remained low. Prices had not fully recovered,nor did imports drop to their pre-1998 level.

In July, Commerce released the “Global Steel Trade Report,” a study ofthe steel market that had been promised the previous year after the quotalegislation failed. Because the report had been modified during an intera-gency review, with particular care not to include anything that couldharm the presidential candidacy of Vice President Gore, the final recom-mendations were “pretty limp,” says David Aaron, who left Commerce inApril. “I would have liked to have seen them recommend a 201 and an in-ternational initiative. I felt that having talked to some of the foreign steelpeople and countries that they would not take us seriously without at leaststarting a 201.” He adds: “Once we got to this report, all the easy things wecould do ourselves, apart from 201, had been exhausted.”

Nevertheless, industry and the union embraced the document, whichsummarized unfair and uneconomic practices in other countries and de-scribed their effects on the US steel industry and the problems of globalovercapacity. Klinefelter, who calls the report “an incredibly valuable doc-ument,” says, “It was the first time that our government had ever laid outwhat our trading partners were doing to us in a systematic fashion in re-gard to steel.”

By the time the report came out, however, another downturn hadbegun. In part because of price increases announced by domestic produc-ers earlier in the year, steel imports had risen in early 2000. After the


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nation’s industrial sector began to slow in May, steel buyers cut back onimports, but even so, weakened domestic demand for steel drove downplant capacity utilization rates once again. Excess inventory and flaggingsales soon took a toll on prices: By the fall, hot-rolled steel was selling foronly $180 a ton, about half what it had gone for in the early spring. Steelcompany stock prices also plummeted, drying up available sources ofcapital.23 The steel slump, coming as it did just two years after the surgeof imports in 1998, hit manufacturers particularly hard. “You had themgetting absolutely hammered in ’98, you had a little bit of a recoverygoing into 2000, then the bottom fell out, so [the integrated steelmakers]didn’t really have any reserves left,” says a former Senate Finance Com-mittee staffer.

By the beginning of October, with Gore and Texas Governor George W.Bush running neck-and-neck in their presidential campaigns, and bothcandidates struggling to lock in key constituencies, the USWA’s GeorgeBecker began meeting with Karen Tramantano and John Podesta, pleadingfor the Clinton administration to self-initiate a 201 case.24 In an October 16letter to President Clinton, the union and more than 70 representatives ofsteelmakers and related firms wrote: “We need a clear public recognitionthat once again there is a crisis devastating the domestic steel industry andthat the existing orders affecting the industry must remain in place. Weneed you to immediately impose meaningful restraints on steel importsfrom offending non-WTO countries. Finally, given this extraordinary cir-cumstance, we need the Administration to immediately initiate a compre-hensive case under Section 201 of our trade laws. Only through these ac-tions can we stop the onslaught we are facing.” Members of Congressbegan working on legislation to support this effort.

The chorus of calls for the administration to self-initiate was under-standable. Although some Clinton representatives had insisted all alongthat a section 201 case brought by industry would have as much chanceof success as one brought by government, that view was shared by virtu-ally no one in the union or in industry. Instead, most observers agreed, ac-tion by the administration changed the equation in important ways. First,self-initiation demonstrated that the president had already concluded thatimports were the cause of serious injury. “It’s a signal to the trading part-ners, it’s a signal to the ITC, it’s a signal to the courts who may be lookingat an appeal,” says former ITC commissioner Thelma Askey. “It’s a lot dif-


23. One former administration official recalls the head of a major steel firm shouting in ameeting that the value of a share of stock had fallen to less than a cup of latte.

24. In an indication of the union’s desperation, Becker even appealed to the administrationto provide steel industry protection under a national security provision—but that, one offi-cial says, “didn’t have a chance in hell,” since only a fraction of US steel capacity went to themilitary.

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ferent when the administration says, ‘We think that given all the consid-erations of the broader economy, this warrants our backing.’”25

Second, if a case brought by the administration was successful, indus-try presumably could count on the president to use his discretion to im-pose a significant trade remedy. Finally—and perhaps most important, ac-cording to some observers—if the ITC ruled against the 201 action, thepresident might still feel bound to provide industry with some meaning-ful relief. “What it all boils down to was putting the president on the hookfor a comprehensive solution,” says William Corbett, then on the staff ofthe National Economic Council, “so that regardless of the outcome at theITC, the president of the United States is responsible for assisting the in-dustry out of its crisis.”26 Given how few comprehensive solutions ex-isted, Corbett notes, any such relief could easily run afoul of WTO rulesconcerning quotas or subsidies.

The union appeal, coming as it did just weeks before the presidentialelection, put the administration on the spot—as it was no doubt intendedto do.27 “We could say, ‘No, we won’t initiate,’” says the former CEA econ-omist Robert Lawrence, “but that would put a big wedge between Goreand the steelworkers. But if we said ‘Yes,’ we would be labeled protec-tionists.” In mid-October, the principals began meeting again in earnest onthe steel issue, and Gene Sperling convened meetings with Becker, varioussteel industry CEOs, and the major economic policymakers in the admin-istration to further analyze the crisis. In an October 25 letter to Becker, JohnPodesta assured the union head that the president was still reviewingsection 201 relief, and that the USTR was simultaneously consulting withcountries including Ukraine, Taiwan, India, and China about moderatingtheir steel exports.

But in a letter to Clinton the following day, the Executive Committee ofthe Congressional Steel Caucus complained that the time for more stud-ies was over. “As you know, a Section 201 action would result in a com-prehensive investigation of steel imports, similar to the investigation youalready propose,” the letter read in part. “Any remedy proposed at theend of this investigation would be implemented at the discretion of thePresident. If the next President feels action is unwarranted, he couldchoose not to act.” Yet in another letter to Clinton written on the same day,the Consuming Industries Trade Action Coalition, a group of steel-using


25. Unless otherwise noted, all quotes from Thelma Askey are from a September 2001 inter-view with the author.

26. Unless otherwise noted, all quotes from William Corbett are from a September 2001 in-terview with the author.

27. The economist Greg Mastel notes that elections had played an important role in paststeel trade policy decisions. President Reagan, for example, endorsed voluntary restraintagreements during his reelection campaign. “Unions and companies are both aware in elec-tions that they have some unique influences,” Mastel says, “and they use them.”

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companies formed in 1999, argued that the steel industry had exaggeratedthe impact of imports, and that severe trade restraints would hurt farmore companies and employees than it would help.

According to White House insiders, the ensuing administration debateon immediate self-initiation of a 201 centered on three main areas of con-cern: the political ramifications of any decision for the upcoming election,the likelihood of the ITC reaching a positive finding, and the broader eco-nomic impact—both in the United States and abroad—of such a trade-limiting measure. While those involved say the short-term political effectwas given the least attention, administration strategists concluded therewas more to lose than gain by initiating. “We had the steelworkers on ourside in the campaign already,” points out David Aaron, formerly of Com-merce, “so we weren’t going to get anything out of it, except that wewould hand Bush an issue to say that we were protectionist.”

A more critical question, insiders say, was whether a 201 case wouldeven be winnable. According to Robert Lawrence, because imports weresubsiding, it would be hard to prove they were the major cause of theindustry’s distress. Moreover, just six months earlier, the ITC had ruledagainst the industry during the injury part of a dumping case on cold-rolled steel—and the injury standards for a 201 case would be considerablyhigher.28 Given that a few steel product areas were still doing reasonablywell, that industry had only posted one quarter of bad economic results,and that certain product segments were already protected by dumping or-ders, winning a comprehensive case appeared unlikely. “It seemed to methat the immediate problems of the steel industry were caused by a com-bination of too much capacity and a slowdown domestically,” Lawrencerecalls. “The biggest source of their injury was not imports.”

Perhaps most important, however, was that industry had also appar-ently concluded that the case was not ripe. Despite the steel company sig-natures on the letter to Clinton calling for self-initiation of a 201 action,soon thereafter industry lawyers at a USTR meeting that included Esser-man, Lawrence, and Klinefelter “spent most of the time saying there wasno case to be made,” recalls one participant. Esserman, who says shewould have had to rely on steel company data to judge whether a 201 casecould succeed, notes that government would not have considered self-initiating without the full support of industry. She adds, “It was disquiet-ing to know that the industry lawyers most familiar with the facts did notthink it was a good option. There was an immense interest coming from


28. The ITC decision provoked outrage among industry and union representatives, whoclaimed that in making its decision, the commission had relied on an inappropriate econo-metric model rather than the usual analysis of market conditions. In a letter of complaint toPresident Clinton, Becker and three steel executives pointed out that Commerce had alreadyfound dumping margins ranging from 16 to 80 percent, and that the volume of cold-rolledimports had doubled between 1996 and 1998 to 2.2 million tons.

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the White House and from various agencies to do something that wouldbe genuinely helpful, and not simply a political stunt.”

Moreover, although Robert Rubin had left Treasury, his successor,Lawrence Summers, was equally adamant that a section 201 action, eventhough temporary, would be bad for the US economy and would send thewrong message to foreign trading partners, possibly spurring retaliatorytrade-restricting measures. “If you looked at US economic interests overallin the eight years under the Clinton administration, it was pretty clear thatregular predictable access to foreign markets was an enormous part of oureconomic success,” explains one administration official. “As the world’slargest exporter, our vulnerability to retaliation was very high in a lot of in-dustries that employ as many or many times more workers than steel.”

One final issue influenced the decision. According to many observers,Bill Clinton was acutely aware of his legacy. While he was proud of histrade record in general and such significant accomplishments as winningapproval of the North American Free Trade Agreement (NAFTA), thepresident had been discouraged by his failure to get fast-track negotiatingauthority, which would have strengthened his ability to negotiate tradeagreements.29 Self-initiating a 201 case, in the eyes of some, would havefurther sullied Clinton’s free-trade credentials. “He didn’t want to add an-other black mark to his second term record on trade,” says one insider.

Election Day arrived November 7 without a decision to self-initiate.“We were pushing them, pushing them, pushing them, trying to get AlGore elected,” says Klinefelter. “We were telling them that they had to dosomething very visible for Gore for us to bring back to those steel states.They wouldn’t do it.”

A New Administration

The results of the 2000 presidential election were mired in controversy overvote-counting irregularities in Florida. Even after it became clear thatGeorge W. Bush would be the next president, the section 201 debate lin-gered on. Klinefelter, who notes that Bush narrowly won normally Demo-cratic West Virginia, believes that the results might have been different ifthe Clinton administration had self-initiated a 201. “It would have gone along way if he could have walked into West Virginia saying that this ad-ministration has initiated a 201 to save the basic steel industry,” he says. Al-though industry remained ambivalent about the trade case, union and steelcaucus representatives who had Clinton’s ear still hoped they might per-suade the president to self-initiate. “We pushed on 201 with Clinton rightup to the end,” recalls Rockefeller’s legislative director, Ellen Doneski.


29. Fast-track negotiating authority gave the president the ability to negotiate trade agree-ments that Congress could either vote down or approve, but not amend. The authority in-creased the willingness of foreign governments to negotiate with the United States.

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Within the administration, there were also still a few individuals whobelieved Clinton should bring a 201 action. The domestic steel industry,after all, had continued to deteriorate. Wheeling-Pittsburgh filed for bank-ruptcy in November, followed by LTV, the nation’s third-largest steel pro-ducer, at the end of December (a number of smaller companies had al-ready filed). Moreover, some 201 supporters claimed that self-initiatingwould be a politically astute move—an argument that Senator Rockefellermade repeatedly. “We could easily have used the logic that we will showour friends in the steel industry that we care about them,” says RobertLawrence. “We will send this thing to the ITC and put huge pressure onthe next Republican president to give them protection.”

In the final analysis, however, many of Clinton’s top policymakers stilldid not believe that a section 201 action was a legitimate response. Al-though the steel industry was unquestionably suffering, Lawrence says,the downturn was primarily due to the weakening US economy. “Wethought it wasn’t good policy, because we thought we couldn’t make thecase that these people merited it,” he explains. “Our hearts bled for thesteel industry, but we didn’t think they were being damaged by imports.”

The union never stopped pushing. According to Klinefelter, on January19, six hours before the administration left office, he and Becker went tothe White House to make a final pitch to Summers, Podesta, and a fewothers. But all the union won, Klinefelter says, was a letter from Clintonto the chairman of the ITC, urging him to look hard at the merits of a 201case. In the letter, Clinton summarized the administration’s steel initia-tives, noting that it had processed more than 100 dumping and counter-vailing duty cases involving steel products since 1998; negotiated agree-ments with Russia; initiated consultations with Japan, Korea, and othersignificant steel exporters; and completed the global steel study, amongother measures. “In spite of these efforts, however,” the president con-cluded, “our analysis of the current and prospective import situation andrecent events in the steel industry lead us to believe that Section 201 reliefmay be warranted in the near future. Therefore, I urge the InternationalTrade Commission to proceed urgently, on its own motion or upon themotion of industry, union, Congressional or Executive Branch petitioners,to provide effective relief for the US steel industry.”

For the union, it was too little, too late. According to one outgoing ad-ministration official, George Becker was particularly bitter, declaring, “Youdidn’t give us any help at all.”

The Case for a 201 Action

Although many Democratic members of the steelworkers union and Con-gressional Steel Caucus did not have established relationships with thenewly inaugurated President George W. Bush or his cabinet, the change


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of administration did not slow their efforts to win protection from steelimports. Senator John Rockefeller, for example, wrote to President Bushwithin days of his inauguration urging him to self-initiate a section 201case, and soon met with Vice President Dick Cheney, Commerce SecretaryDonald Evans, and White House political staff. “The senator has made thecase to those who he thought would be sensitive not just to the economicor the business or the trade argument, but the political argument,” saysEllen Doneski. “They’re certainly interested in winning West Virginiaagain.”

The quickly worsening condition of the steel industry also spurred anew round of legislation. On March 1 Representatives Peter Viscloskyand Jack Quinn introduced the Steel Revitalization Act of 2001, a sprawl-ing four-pronged bill that dwarfed the quota bill they had submitted in1999. In addition to incorporating a more restrictive quota provision, theact increased the funds available under Senator Byrd’s loan guaranteeprogram to $10 billion and upped the government-guaranteed percent-age from 85 to 95 percent,30 set a 1.5 percent surcharge on all steel to bank-roll a legacy cost fund that companies could draw on for retirees’ healthcare, and established a $500 million grant program to encourage consoli-dation within the domestic steel industry by funding environmental clean-ups and restructuring.

Finally, in a reversal of its former position, the steel industry joined theunion and Congress in calling for comprehensive relief. “One is driven bythe circumstances in which one finds oneself—the factual and policybases for getting relief in a section 201 case were now satisfied,” sums upAlan Wolff, a lawyer for steel companies. In March, a broad-based coali-tion of steel associations called for the administration to self-initiate a 201case or to find some other WTO-compatible way to restrict imports.31

While mini-mills and integrated steel companies still disagreed aboutwhether government should help with legacy costs and restructuring,they were united on the need for protection from excess global steel.

Driving industry to unify was an accelerating decline that went well be-yond the bad news of 1998, as the slowing of the domestic economy driedup demand for steel. Even with imports down, capacity continued to ex-ceed demand, and hot- and cold-rolled sheet prices fell that spring to theirlowest point in 20 years. A total of 18 steel companies had filed for bank-ruptcy since the end of 1997, and about 23,500 workers had lost their jobs.Moreover, between November 2000 and June 2001, more than 7 million net


30. Only one company, Geneva Steel, had received funds under Byrd’s original loan guar-antee program, in part because applicants looked like such bad risks that commercial banksdid not want to assume responsibility for even 15 percent of a possible loan.

31. The coalition included the American Iron and Steel Institute, the Cold Finished Steel BarInstitute, the Committee on Pipe and Tube Imports, the Specialty Steel Industry of NorthAmerica, and the Steel Manufacturers Association.

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tons of capacity in the United States shut down. “It’s a fair assessment tosay that the domestic industry was being absolutely devastated,” says oneinsider. “You can argue about whose fault it was, but the reality is you hada quarter of the industry in bankruptcy, you had 7 million tons of it shutdown as a result of actual liquidations, and you had stock valuations thathad fallen through the floor.”

Adding to industry’s interest in a section 201 action was the reality thatsimply mounting cases against dumping no longer seemed adequate tostem imports. As quickly as a dumping order shut off supply from onecountry, another steel entrant stepped up exports of the same product tofill the gap. Despite the earlier successful hot-rolled steel dumping casesbrought against Japan, Russia, and Brazil, for example, imports of hot-rolled steel crept up again in 2000; eventually, a group of companies led byNucor filed a second round of cases against 11 countries, including India,South Africa, China, and Ukraine. “The global steel market is much moreelastic than it used to be,” says Klinefelter. “People know how to shoparound, and these items can be made in any country in the world wherethere is a steel mill, so things move much more quickly than they used to.”

Industry may also have felt that the ITC would be more receptive to a201 case then than it had been in recent history. At the end of his tenure,President Clinton had decided not to renominate Commissioner ThelmaAskey at the urging of the United Steelworkers of America and the Con-gressional Steel Caucus, whose members claimed that Askey’s aggressivefree trade stance had earned her the commission’s worst voting record ontrade relief for steel. Although President Bush had attempted to reappointAskey, he withdrew her nomination after encountering opposition fromlegislators whose support was critical to moving his tax bill through theHouse Ways and Means and Senate Finance committees.32 According tomany observers, Askey’s replacement, Dennis Devaney (a recess appoint-ment made by Clinton), was seen as a more reliable vote for protection.“The union has changed the complexion of the commission sufficiently sothat it is very difficult for them to lose,” says one critic.

A Plan for Steel

The steel industry’s clear sense of desperation put the steel issue “up frontand center” for the new Bush administration, according to one official,who says there was also “intense pressure from the Hill”—even from leg-islators who had always opposed the idea of a quota. Commerce Secre-tary Evans, Treasury Secretary Paul O’Neill, and USTR Robert Zoellick


32. Bush instead nominated Askey to be director of the US Trade and Development Agency,a government agency dedicated to encouraging US exports to developing and middle-income countries.

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took the lead, aided by CEA Chairman Glenn Hubbard, spending hourswith Wall Street analysts to study the industry.33 Meanwhile, the NationalSecurity Council and the National Economic Council doled out researchassignments to the various agencies.

At first glance, steel’s chances of getting the Bush administration to acton a 201 claim might have seemed low: Historically, the Republican Partysupported free trade principles, and Bush had specifically focused on is-sues of free trade and noninterference in markets during his campaign.But some observers, noting that the Republican administrations of Rea-gan and George H. W. Bush had implemented the arguably protectionistvoluntary restraint agreements, claimed that Bush might feel free to actprecisely because of his free trade reputation. “After all, it took Nixon togo to China,” says Peder Maarbjerg, legislative director for RepresentativePeter Visclosky. “It took Clinton to reform welfare. Bush already had allthe business people on his side.”34 Rockefeller’s aide Doneski adds, “TheRepublicans weren’t afraid to look like they were willing to use our tradelaws, because nobody is going to accuse them of being anti–free trade.”

Even with industry’s support, the administration’s ability to make acase that imports were the primary cause of injury, as required under sec-tion 201, remained in question. Preliminary Commerce figures at the endof May showed that steel imports through March were 6.2 million metrictons, a more than 30 percent decrease from a year earlier. In order to im-plicate imports in the current industry slide, a 201 case would have to em-ploy a five-year trend line encompassing the earlier 1998 import surge.But since steelmakers had never fully recovered from the 1998 crisis, 201supporters argued that linking the two downturns was legally sound.

By May, the Bush administration—convinced that the steel industryneeded some kind of intervention—was seriously grappling with the pos-sibility of self-initiating a 201 action. To do so could bring significant po-litical rewards. USTR Robert Zoellick believed a 201 case could serve as an olive branch to the steel union and the Congressional Steel Caucus,insiders say, improving the president’s chances of winning trade promo-tion authority (formerly known as fast-track authority). With trade pro-motion authority, Bush would be in a better position to pursue two keygoals: negotiating a Free Trade Area of the Americas, which would lowertariffs and encourage open borders within the Western Hemisphere, andlaunching a new WTO trade round. “His hope was not to get the supportof the unions for either of those endeavors,” says foreign steel attorney


33. Steel received unusual high-level attention, some insiders say, because few subcabinet-level positions had been filled.

34. Unless otherwise noted, all quotes from Peder Maarbjerg are from a September 2001 in-terview with the author.

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William Barringer, “but to make steel a non-issue in at least launchingthose initiatives.”35

White House Senior Adviser Karl Rove and other political strategistswere also reportedly pushing for a 201 case, arguing that it would helpBush promote nontrade issues—such as tax cuts and education reform—as well as build support in key electoral states in preparation for the nextpresidential election. Klinefelter says the strategy was sound: “In 2004,Bush could go into Pennsylvania, Ohio, Indiana, Illinois, and West Vir-ginia and say, ‘I’m the president who saved your job.’ Now it doesn’tmake any difference what the leadership of the steelworkers union saysabout the next Democratic presidential candidate. If Bush comes throughon this 201, he’s going to get our guys.”

But insiders insist that political motives were taking a backseat to pol-icy considerations. Evans, O’Neill, and Zoellick were more interested intackling the global steel industry’s chronic issues of subsidies and ineffi-cient excess capacity than they were in blocking imports, observers say.But the members of the new administration reasoned that a 201 case couldprovide temporary relief, while helping to persuade steelmakers—bothdomestically and abroad—to address the industry’s deeper problems. Of-ficials were not sure what form such discussions should take, or whetherthey should be bilateral or multilateral, but they resolved to pursue someform of international steel negotiations. “People realized that if we didn’tact, there was a good chance we were going to get steel quotas or some-thing else that was going to gum up the works in terms of a broader tradeagenda,” one official remarks.

While still deliberating at the end of May, the White House got an un-expected prod. Rockefeller and other steel-supporting members of theSenate Finance Committee had wanted the committee to take the initia-tive and launch a 201 action since the beginning of the year, but ChairmanCharles Grassley (R-IA) had blocked progress on the motion. After Sena-tor James Jeffords (R-VT) defected from the Republican Party, however,giving control of the Finance Committee to the Democrats, the new chair,Montana Democrat Max Baucus, vowed to move ahead. Had the FinanceCommittee taken the initiative, many observers say, the Democrats wouldhave grabbed much of the political capital to be gained from the action.

The administration, however, moved first. In a step that took industry,the union, and Congress by surprise, President Bush announced on June 5that his administration would self-initiate a 201 investigation for 33 typesof steel imports.36 After declaring that “the US steel industry has been af-


35. The likely impact of a 201 self-initiation on long-held congressional stands on trade wasdebatable, however. As one former Clinton official notes, “The Democrats in Congress stillhave to work with the unions. I don’t know that the unions are just going to roll over andsay, ‘Go ahead and get your fast track and sign your WTO agreement.’ ”

36. The Senate Finance Committee later filed a 201 case structured on the administration’scase to demonstrate Hill support.

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fected by a 50-year legacy of foreign government intervention in the mar-ket and direct financial support of their steel industries,” Bush announcedthat his administration would conduct two sets of international steelnegotiations—one to eliminate inefficient excess global capacity, and alonger-term effort to reduce market-distorting subsidies.37 “They sat downand they actually came up with a coherent plan, not all of which we hadsuggested,” says Alan Wolff. “The Clinton administration really nevercame to grips with what could be done, although, to be fair, its optionswere more limited. By the time the Bush administration acted, the crisishad fully arrived, and more tools were clearly available.”

A Measure of Protection

President Bush’s unanticipated announcement elicited an immediate andpowerful response. “It is an important message that the United States will not allow its steel industry to be destroyed by illegal steel imports,”declared James G. Bradley, president of Wheeling-Pittsburgh.38 For theunion and steel caucus representatives who had invested so much timeand energy during both the Clinton and Bush administrations, the actionwas a long-awaited payoff and a welcome sign of the new president’s re-ceptiveness to steel concerns. “I was so frustrated with the Clinton peo-ple, and disappointed in the way that they dealt with this,” says Klinefel-ter. “I’ve got to say, this Bush administration seems to care more aboutworking people. They care more about jobs, and that’s what working peo-ple are about.”

But those opposed to trade barriers and special protection for steel re-acted with anger and concern, accusing the Bush administration of cavingin to union and industry pressure. “A Section 201 investigation is a veryserious step,” Janet Kopenhaver, executive director of the Consuming In-dustries Trade Action Coalition—a steel users group—asserted in a writ-ten statement. “If it results in restricting steel imports, it could severelyimpact US consumers and steel consuming industries, but won’t solve theUS industry’s basic problems.” Similarly, in letters sent to Zoellick, Evans,and O’Neill, the president of the American Institute for International Steelwrote, “Our firm belief is that the current difficult conditions the US steelindustry finds itself in stems from living in a protected steel market forover 30 years and benefiting from subsidy programs provided by federal,state and local governments. Simply put, protectionism and subsidies donot create competitive industries.”


37. “Statement by the President Regarding a Multilateral Initiative on Steel,” White Housepress release, June 5, 2001, www.whitehouse.gov.

38. Bradley, quoted in Leslie Wayne, “A Significant Lift for a Long-Ailing US Industry,” TheNew York Times, June 6, 2001, C4.

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Foreign trading partners also expressed their strong displeasure—particularly EU representatives, who blamed US steel woes on the indus-try’s having shirked the painful and across-the-board consolidation un-dertaken by European steel firms over the past two decades. Five EUsteelmakers were among the world’s 10 largest steel producers, EU offi-cials noted as proof of European industry reform, while the largest Amer-ican producer, U.S. Steel, came in at number 11. In a prepared statement,European Trade Commissioner Pascal Lamy declared: “The cost of re-structuring in the US steel sector should not be shifted to the rest of theworld. The imposition of safeguard measures would risk seriously dis-rupting world steel trade.”39

On June 22 Robert Zoellick formally self-initiated the 201 action on be-half of the administration, with an ITC decision expected four monthslater. How the ITC would rule was debatable, particularly since many ob-servers in mid-2001 still questioned whether the proper conditions ex-isted to bring a 201 case. Nevertheless, in October 2001 the ITC gave aclear vote in favor of safeguards, ruling that imports were injuring USsteel producers in 16—or almost half—of the 33 categories under investi-gation. In December, the commissioners recommended remedies rangingfrom moderate quotas to prohibitive tariffs of 30 to 40 percent.40 It wouldbe up to the president to decide on the exact remedy, if any.

During January and February, the Bush administration was floodedwith appeals. These ranged from an EU proposal that, in lieu of tariffs, the United States impose a tax on both domestic and imported steel shipments, which would help to cover industry legacy costs and aid inrestructuring, to a letter signed by 140 Congress members advocatingacross-the-board tariffs that would run a full four years. On March 6, 2002,after intense consultations with political and economic advisers, Presi-dent Bush announced what many observers termed a carefully balancedcompromise. The United States would impose three-year safeguards on10 of the 12 categories of steel imports, with tariffs ranging from a low of8 percent for stainless steel rod to a high of 30 percent for flat-rolled and3 other categories of steel. The tariffs, which went into effect on March 20,were slated to drop each year of the three-year remedy period.

A number of exceptions softened the blow. All countries with free tradeagreements with the United States—most notably Canada and Mexico—were excluded, as were developing nations with imports to the UnitedStates totaling less than 3 percent of the domestic market.41 In certain cat-


39. Lamy, quoted in Alan Cowell, “Swift Condemnation of US on Steel,” The New York Times,June 7, 2001, W1.

40. The actual recommendation covered 12 rather than 16 categories, since the ITC com-bined 5 into 1.

41. In addition to Canada and Mexico, Israel and Jordan had free trade agreements with theUnited States, and more than a dozen developing countries qualified for the exclusions.

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egories of steel, these exclusions amounted to as much as 35 percent of im-ports. Also not covered were certain steel products that US manufacturersdid not make or were not interested in making themselves. Over the nextfew months, the Bush administration promised to evaluate the many hun-dreds of further requests for exclusions it had received, both from do-mestic steelmakers and steel users and from foreign petitioners.

The World Reacts

The reactions of various constituencies to the tariffs were, for the mostpart, predictable. Though the remedies were not as extreme as most of thedomestic steel industry had desired, and though the decrease in tariffsduring years two and three of the 201 action would reduce the impact ofthe safeguard remedy, the majority of US steel producers—in particularintegrated mills and mini-mills, who benefited most from the trade re-straints—declared themselves satisfied. “This is protection in substance as well as appearance,” said Robert Miller, chief executive of BethlehemSteel.42

However, domestic steel consumers and free trade advocates—includ-ing many conservatives normally supportive of Bush and his policies—charged that the tariffs were blatantly protectionist, would damage USsteel-using industries more than they would help steel producers, andwere adopted for purely political reasons (notably, gaining support priorto the November midterm elections and positioning Bush for the 2004presidential election).43 “Sometimes politics dominates good economicdecision-making in the best of administrations,” said Gerald O’Driscoll,director of the Heritage Foundation’s Center for International Trade andEconomics. “This is purely a political decision. There is no economic jus-tification for it.”44

Moreover, many observers claimed that since every safeguards mea-sure challenged in the WTO to that point had been declared illegal, theBush administration knew full well that the 201 action eventually wouldbe rejected by the organization. However, the almost two years likelyneeded for the dispute settlement process to reach any conclusion wouldgive the tariffs ample time to block steel imports to the clear benefit of thedomestic steel industry.


42. Miller, quoted in David E. Sanger, “Bush Puts Tariffs of As Much As 30% on Steel Im-ports,” The New York Times, March 6, 2002, A1.

43. The 201 action appeared to bring quick and concrete political dividends for the admin-istration. In July 2002 Congressional Steel Caucus support helped the administration to wintrade promotion authority—perhaps its top trade goal—by a narrow margin; the law tookforce in August 2002.

44. O’Driscoll, quoted in Richard W. Stevenson, “Steel Tariffs Weaken Bush’s Global Hand,”The New York Times, March 6, 2002, C1.

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Foreign trading partners, meanwhile, expressed outrage. The WTO Safe-guards Agreement permitted a country to impose tariffs without retalia-tion as long as the claimed increase was documented and the tariffs werelimited to three years. But according to the European Union, steel exportsto the United States had fallen over the previous eight years, and it de-clared its intention either to get immediate compensation from the UnitedStates to account for lost trade or to begin its own retaliation against USexports. Japan and other countries also announced plans to retaliate. Inearly June, as predicted, the European Union requested the formation of aWTO dispute settlement panel to consider its complaint against the 201 ac-tion, and it was soon joined by seven other countries.45

Over the next few months, as domestic steel-using companies appealedto the administration for relief and foreign governments accused the UnitedStates of being anti–free trade, the USTR continued to consider requestsfor exclusions. The European Union was particularly assertive, and itbacked up its requests with an ongoing threat to impose tariffs worth $335million on a select list of US exports in advance of any WTO decision (aninterim panel decision was not expected until late that year at the earliest).In part to ease cross-Atlantic tension and to make it less likely that the Eu-ropean Union would retaliate early, the USTR over the summer excludeda significant number of EU products from tariffs, as well as granting re-quests from Japan, US steel producers and users, and others. By the timea large batch of exclusions was announced in August 2002, about a quar-ter of the steel that could have been affected by the 201 action had beenexempted, according to US officials. Largely because of the exclusions, theEuropean Union in the fall of 2002 agreed to postpone retaliation until theWTO dispute panel issued its ruling.

A Period of Consolidation

In first announcing the section 201 action, the Bush administration had in-sisted that any industry protection would be accompanied by parallel ef-forts to pare down excess global capacity and reduce market-distortingsubsidies. With the tariffs in place, serious questions remained about whatthe three prongs of the administration’s plan might achieve and how theywould interact. For example, while the ostensible purpose of the 201 casewas to provide the domestic steel industry with comprehensive, short-term relief from imports, allowing it a period of recovery, Bush adminis-tration officials also hoped to use the case as a lever to encourage steelcompanies to take a hard look at their own operations and pursue re-structuring at home. “Before they actually did this, Evans, O’Neill, and


45. The complainants, in addition to the European Union, were Brazil, China, Japan, NewZealand, Norway, South Korea, and Switzerland.

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Zoellick sat down with the CEOs and the unions and said, ‘Look, if we dothis, you guys have to make good on the restructuring element of this,’”says one close observer. “We’re not in this for market protection; we’re inthis to solve the fundamental underlying problem that has brought ushere in the first place.”

In June 2002, USTR Zoellick and Commerce Secretary Evans sent a let-ter to domestic steelmakers asking them to submit consolidation progressreports in September as well as the following March, at which point the201 action would have been in place one year. The reports, wrote the offi-cials, should include “measures to consolidate and rationalize operations,reduce costs, enhance efficiency, increase productivity, improve qualityand service, and develop new products and markets.”46

Meanwhile, even before the ITC ruled on section 201, the United Stateshad brought the twin problems of global overcapacity and market-distorting practices before the steel committee of the Organization for Eco-nomic Cooperation and Development (OECD). The committee took up theissues during the fall of 2001, but some foreign participants complainedthat the timing of the meetings, which took place as the Bush administra-tion was debating the extent of 201 remedies, was intended to enable theAmericans to use the threat of high tariffs to force international compli-ance. Even so, the group produced a communiqué in mid-December 2001declaring that governments of steel-producing countries should initiatepolicies supportive of restructuring and consolidation. The recommenda-tion was purely voluntary, however, and did not hold participants to anyspecific course of action.

The effort to address subsidies was even less productive. Though thesteel committee met several times during 2002, a US proposal at a Sep-tember 2002 meeting to draw up an international agreement curbing sub-sidies met with widespread resistance—in part because representatives ofother countries insisted that the United States’ antidumping and counter-vailing duty laws would need to be part of that discussion, a move thatthe United States refused to consider.47

In the United States, the steel industry appeared to agree on the need forrestructuring, but called for more government help to make it possible. InSeptember 2002, steel companies began submitting reports on the impactof the 201 action on their operations and on their current and future plansfor restructuring, as USTR Zoellick had requested. But companies alsoused the reports as an opportunity to criticize the number of tariff exclu-sions granted by the government, and to restate the importance of keeping


46. Letter quoted in “Administration Sets Mileposts for Steel Industry Restructuring,” InsideUS Trade, June 28, 2002.

47. The OECD committee kept meeting into 2004; but after members were unable to over-come key differences, participants eventually dropped the steel subsidies talks in favor of in-formal consultations.

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the section 201 tariffs in place for a full three years, declaring that corpo-rate consolidation efforts—while promising—had barely gotten underway.48 Moreover, integrated steelmakers continued to request governmenthelp with legacy costs; they also stressed the need for new labor agree-ments with steelworkers that would aid in cost cutting and consolidation.

In fact, though, because of a number of factors, the US steel industry was restructuring, consolidating, and—for most of those companies thatsurvived—becoming more profitable. In the year and a half following theannouncement of the 201 action in March 2002, nine more US steel com-panies went bankrupt, taking at least some inefficient capacity off the mar-ket.49 At the same time, steel prices were rising worldwide as the globaleconomy recovered and as demand for steel grew, particularly in China. Inthe United States, overall steel imports dropped by about 30 percent dur-ing 2003 alone, both because of the section 201 tariffs and because the weakUS dollar made the domestic market less attractive to foreign producers.50

Another critical development, observers say, was the government’s as-sumption of the legacy costs of some key companies. In March 2002 thePension Benefit Guaranty Corporation, the federal agency that insures pri-vate pension plans, took over pension obligations for LTV Steel, and in De-cember it assumed the obligations of the failing Bethlehem and NationalSteel companies (at a cost of $7.1 billion).

Higher steel prices, the federal agency’s assumption of crippling legacycosts, and, in some cases, cost-cutting new labor agreements with the steel-workers union made the assets of many of these bankrupt steel companiesattractive to profitable steel producers;51 the result was a wave of consoli-dations. The newly formed International Steel Group bought LTV’s assetsas LTV’s pension obligations were lifted in early 2002, and in 2003 it wenton to buy the assets of Bethlehem, Weirton, and Georgetown Steel. U.S.Steel bought National Steel’s assets, and Nucor bought the assets of Birm-ingham Steel as well as Trico Steel, which was a joint venture between LTVand two international steel companies (Hufbauer and Goodrich 2003).


48. There was a real chance that the Bush administration would lift the tariffs at the halfwaypoint, particularly if the WTO panel ruled against the section 201 action and the EuropeanUnion began retaliations.

49. Two companies, National Steel and Calumet Steel, were teetering on the edge and fellover even before the 201 action was formally initiated. The other seven were BirminghamSteel, Cold Metal Products, Bayou Steel, Kentucky Electric Steel, EvTac Mining, WeirtonSteel, and WCI Steel (Hufbauer and Goodrich 2003).

50. Ron Scherer and Adam Parker, “Big Steel’s Surprise Comeback: A Bush Decision to LiftTariffs on Cheap Imports Could Nonetheless Have Big Political Consequences,” The Chris-tian Science Monitor, December 5, 2003, 1.

51. The union struck new labor agreements with the International Steel Group and U.S.Steel, for example, to aid the companies in acquiring bankrupt steel company assets and sal-vage jobs that might otherwise be lost.

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Postconsolidation, the three newly expanded companies were expected tobe more productive and better able to compete against large foreign pro-ducers in Europe and Asia. Indeed, by late 2003, the US steel industryseemed to be on its best footing in years.

Supporters of section 201 attributed much of the domestic steel indus-try’s gains to the breathing room provided by the safeguard action, insist-ing that without the stability, increased investor confidence, and subse-quent access to capital markets made possible by the tariffs, US companieswould not have been able to make such progress in eliminating old facili-ties, consolidating, and reinvesting. But free trade advocates argued thatthere was no direct causal relationship between the 201 action and the in-dustry’s restructuring. Consolidation, they insisted, happened only in theface of bankruptcy, and the tariffs, if anything, had slowed that process bycontributing to higher steel prices that might have helped some weakcompanies to stay afloat.

The WTO Rules

As the US steel industry underwent a recovery, the case against the section201 action was working its way through the protracted WTO dispute set-tlement process. In May 2003, as many observers had predicted, the WTOdispute panel ruled that the safeguards imposed by the United States in all10 steel categories were illegal. According to the almost 1,000-page report,the ITC in reaching its conclusions had failed to meet four main conditionsrequired under WTO rules. For the top import category of flat-rolled steeland four other kinds, for example, the report claimed that the UnitedStates had not shown import increases since 1998; in fact, it found thatthere had been a general downward trend. Also inadequately documentedby the ITC, according to the panel, was the claim that increased importswere the result of unforeseen developments. In every category but one, theWTO concluded that import surges were not the primary cause of the in-dustry’s malaise. Finally, the panel ruled that in reaching its injury find-ings, the ITC should not have included imports from countries—such asthe NAFTA partners—whose products ultimately were excluded from thesafeguards.

In August the United States appealed the ruling, attacking both theWTO’s findings and, in some cases, the procedures the panel had used toreach them. A decision on the appeal was expected in October. Meanwhile,in September the ITC issued a midterm assessment—a requirement of the201 process—on the impact of the measure on steelmakers. To the dismayof the steel industry, the ITC simultaneously issued a report examininghow the safeguard action had affected steel users, as requested by HouseWays and Means Committee Chairman Bill Thomas (R-CA).


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These two assessments agreed on the difficulty of weighing the tariffs’exact impact on either steel users or producers independent of othereconomic factors. However, both supporters and opponents of the 201 ac-tion welcomed the reports’ conclusions as validating their positions. Al-though steelmakers complained, USTR Zoellick indicated that the presi-dent would consider both reports in determining whether to continue the201 case for its full three-year term or to conclude it early. Pressure wasbuilding to make such a decision soon. Although the European Union hadheld off on retaliation, in large part because many EU exports were cov-ered by exclusions, it had made it clear that if the US appeal before theWTO failed and the tariffs remained in place, the European Union wouldretaliate in December with $2.2 billion in tariffs on US goods.52

In November, the WTO Appellate Body finally issued its ruling, up-holding almost all of the major findings of the initial panel ruling. It was not immediately clear how President Bush would react. Though theadministration was bombarded by appeals from members of Congress,foreign trade officials, steel users, steelmakers, and steel union represen-tatives, it stayed largely silent on its plans. But on December 4, as the Eu-ropean Union prepared to start its retaliation, Bush announced he was ter-minating the 201 action at its midpoint, ending some 20 months of steelimport tariffs. According to Bush’s written statement, the tariffs had “nowachieved their purpose, and as a result of changed economic circum-stances it is time to lift them.”53

Most observers concluded that the adverse WTO Appellate Body rulingand the prospect of punishing EU tariffs on US exports killed administra-tion enthusiasm for the tariffs. But USTR Zoellick claimed that the deci-sion was based instead on changed global economic circumstances, in-cluding higher steel prices in the United States brought about in part byincreased demand in Russia and China, as well as by a drop in imports.In addition, Zoellick said, the September ITC report indicated that con-tinuing the 201 action would begin to harm steel-using companies in theUnited States. In any event, with the tariffs lifted, the European Unionand others dropped their retaliation plans.

The section 201 case remained controversial to the end. “The Americansteel industry and its workers were depending on President Bush for thechance to complete its restructuring and consolidation,” declared Repre-


52. Particularly targeted on the tariff list were products from politically important states,such as textiles from the Carolinas and Florida orange juice. Although the United Statesclaimed there could be no retaliation until an arbitration panel ruled on the timing andamount of the retaliation, the European Union claimed it could act immediately if and whenthe WTO ruled that the safeguards were illegal.

53. Bush’s statement on steel, quoted in “U.S. Promises Self-Initiation of Trade Cases AfterSteel Tariff Repeal,” Inside US Trade, December 5, 2003.

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sentative Peter Visclosky, one of the most influential members of the Con-gressional Steel Caucus. “Unfortunately, his December 4 decision will notallow that to happen and further clouds the future of the domestic steelproducing industry.” But an editorial in the Independent of London, whichcredited the EU retaliation threat and criticism from US steel-using indus-tries with having forced Bush’s hand, sounded a very different note: “Mr.Bush’s retrograde measure will surely be looked back on as a 20-monthaberration in the long story of progress towards global free trade.”54


54. “The Steel Victory Must Open Up Fair Trade As Well As Free Trade,” The Independent,December 6, 2003.

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Case Analysis

This case deals with the most basic issue in trade policy: When, if ever,should domestic industries that experience difficulties be granted protec-tion from import competition? The answer involves economic, political,and legal considerations.

Free Trade Versus Protection

Economic theory tells us that in an economy with full employment, thenation as a whole gains by buying cheaper imports regardless of whetherthe low prices reflect foreign productivity or foreign subsidies. The keynotion is that price signals will lead countries to specialize in the activitiesthat bring them the highest rewards. While it may be true that domesticfirms that compete with imports lose, under competitive conditions thegains to domestic consumers will outweigh those losses.

We know, however, that in the short run, there may be adjustment costsas workers lose their jobs and they, together with other resources, need toshift to alternative employment. In addition, price signals may fail to ac-curately capture social costs, and “market failures” may follow. For exam-ple, domestic steel production could be required to promote national de-fense, a consideration that a private market system will not automaticallytake into account. Similarly, allowing imports to enter freely could createproblems if foreigners engage in predatory behavior that triggers the exitof domestic firms, thereby setting the stage for the importers to exercisemonopoly power in the future. But even when these problems arise, itdoes not necessarily follow that trade protection is the best approach. Inthis instance, we could permit free trade and directly help affected work-ers to engage in retraining, subsidize the mills we really need for nationaldefense, and use antitrust policies rather than protection to deal withemergent monopolies.

Although reliance on adjustment would result in superior long-termeconomic outcomes, domestic political realities make calls for protectiondifficult to resist. Political decision makers are forced to grapple with“two-level” game dynamics in dealing with trade issues—they have to si-multaneously seek to advance national interests in external negotiationswhile balancing the competing demands of domestic winners and losers.The winners from cheaper steel imports, for example, will be consumersand those who manufacture goods that use steel as an input; the loserscould be owners of steel mills, workers with steelmaking skills, and re-gions with steelmaking facilities.

The protection decision becomes even more charged when there areperceptions that competition is unfair, either because of the pricing be-


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havior of foreign firms or because of subsidies and other forms of assis-tance given by foreign governments. Though the nation as a whole maywell gain from such behavior, the perception that domestic firms are un-fairly treated by foreign subsidies may make it very difficult for domesticpolicymakers to resist responding in kind. An international agreement orat least some defense against subsidized imports may be needed to pro-tect a government from being compelled to undertake equally undesir-able policies in order to avoid severe electoral setbacks.

Thus, offering an industry short-term protection from foreign competi-tion can serve as a safety valve that releases domestic political pressure.The design of the dispute settlement system of the WTO makes recourseto it an attractive option, because the parties bringing suits cannot recoverdamages for losses incurred while the case is being processed. Powerfulplayers in the trading system, in this case the United States, can thereforetake actions to placate powerful domestic political constituencies—know-ing full well that their actions will eventually be found to be noncompli-ant with WTO rules—at relatively little cost. In this way, the actions of theBush administration in this case exemplify one form of “rational breach.”

At its most basic level, then, the questions in this case are, why mightan industry be given temporary protection? And what are the implica-tions for the design and operation of the WTO dispute settlement system?Because of its economic and political importance, steel provides an excel-lent lens through which to explore the interplay of economic, political,and legal issues in the context of the two-level game.

Steel is produced in large plants, and the industry wields considerablepolitical clout. The United Steelworkers of America is a powerful and ef-fective union, and steel operations are an important part of the economyin many congressional districts. Steel is seen by many as being a key in-dustry strategically, both for national defense and for the economy moregenerally. The industry is also a source of high-paying jobs, particularlyfor workers with relatively low levels of education. Proponents of steelprotection frequently stress these attributes. On the other hand, oppo-nents of protection point to the importance of steel inputs in the produc-tion of other goods and the employment that such manufacturing pro-vides. They voice concerns that while protection may save steel jobs, itcould lead to layoffs elsewhere.

The debate over steel protection is also affected by the behavior offoreign governments, many of which—for some of these same reasons—have protected, subsidized, and nationalized their steel production. Amer-ican steel companies often call for a level playing field and have becomeskilled in the use of countervailing duties rules to provide themselves withrelief. As participants in a highly capital-intensive sector, steel firms oftenfind themselves selling below cost during cyclical downturns, and they arethus very vulnerable to the laws that regard selling below cost as dumping.


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Rules

The WTO rules aim at achieving freer trade, and they require countries tobind their tariffs at agreed-on rates. But these rules do allow for protec-tionist responses in the face of trade that is deemed either unfair or highlydisruptive.55 Unfair trade is dealt with through provisions that allow theimposition of countervailing duties in response to foreign subsidies that“cause or threaten to cause” injury and the imposition of antidumpingduties if imports cause injury as a result of being sold at “less than normalvalue.” In addition, even without evidence of unfair trade, safeguard ac-tions that involve temporary protection may be undertaken if importscause injury.

In both the WTO agreements and in US law, imports that are being un-fairly traded are treated more severely than those that occasion a safeguardresponse. While the standard for imposing antidumping or countervailingduties is “material injury,” the standard for taking safeguard actions—“substantial injury”—is harder to meet. In addition, under US law, offset-ting remedies must be implemented if dumping or subsidies are found; thepresident has no discretion. However, even if evidence of substantial in-jury is found by the ITC, safeguards can be implemented only if the pres-ident agrees; thus the president may choose not to act if that course isdeemed to be in the national interest. It should also be noted that whilesafeguards must be applied irrespective of source—that is, on all im-ports—antidumping and countervailing duties are applied selectively, af-fecting only those products being unfairly traded.

A key idea in the WTO is reciprocity, and the balance of concessions be-tween members may be disturbed when a safeguard is implemented. Ac-cordingly, the rules state that if a country implements safeguard measuresand does not offer affected countries compensatory relief, affected WTOmembers can suspend concessions that are substantially equivalent.

Under the original GATT agreement, this retaliation could be speedilyimplemented. However, Article 8 of the Safeguards Code, negotiated inthe Uruguay Round, states that the right of suspension “shall not be ex-ercised for the first three years that a safeguard measure is in effect, pro-vided that the safeguard measure has been taken as a result of an absoluteincrease in imports and that such a measure conforms to the provisions ofthis agreement.” Therefore, assuming they were legal, any US safeguardactions to protect steel could likely affect US and world markets for atleast three years without any retaliation being allowed.


55. Responses to unfair trade are covered in GATT Article VI (Anti-dumping and Counter-vailing Duties) and the Agreement on Subsidies and Countervailing Measures (SCM); re-sponses to injurious imports are covered in GATT Article XIX (Emergency Action on Importsof Particular Products) and the Agreement on Safeguards.

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In this case, we see how these rules were used to provide the industrywith some measure of protection; but we also see that selective applica-tion to just a few production sources may simply induce more suppliesfrom others and not provide much relief. At the end of the day, therefore,the industry will likely seek comprehensive safeguard relief.

The case also brings out a number of interesting features of the US and WTO systems for providing trade protection. The safeguards imple-mented by President George W. Bush followed US law. The bipartisan ITCunanimously acceded to the president’s request to find injury, and thepresident followed its recommendation for protection. Nevertheless, theEuropean Union was able to challenge this action at the WTO, since theITC had not reached its conclusions in accordance with WTO rules. First,imports in some of the steel categories given protection had not actuallyincreased in absolute volume, as is required to avoid retaliation for threeyears; second, the ITC failed to make the case that the import surge re-flected “unforeseen developments,” another requirement in the GATTrule; and third, the ITC had excluded imports from certain countries (suchas Mexico, Canada, and some developing countries) from protection eventhough it had used them in considering the source of injury. In responseto these findings, with its appeal lost and threatened by retaliation, theUnited States removed the protection. Clearly, the US ITC had problemsdrafting a finding that would stand up to a WTO challenge.

Key Questions

What should we learn from this case? Is protection ever justified? Shouldthe trade rules permit safeguard protection? Are the rules as currently im-plemented in the United States and at the WTO effective and appropriate?

The domestic political behavior in the case is unexpected. Bill Clinton,the Democrat with strong labor support, reject steelworkers’ requests forhelp. George Bush, the Republican, was more responsive. What do theiractions tell us about politics, principles, and the driving force behindtrade policy?

The case also provides insights into the WTO. On the one hand, theUnited States resorted to protection and got away with its illegal actionfor several years; on the other hand, the United States was successfullychallenged and induced to change its policies when they were found inviolation of the rules. Does this outcome show that the international ruleof law operates effectively through the WTO dispute settlement system,or does it show that the rules are too weak? There is much here to ponderand discuss.


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